Purpose – The paper aims to generate estimates of appraised value using two present value appraisal models. Financing for a commercial property is contingent on an appraiser estimate of value. The paper seeks to address the issue of which approach generally provides more conservative estimates-of-value.
Design/methodology/approach – The Comparative-Income Growth Model and Mortgage-Equity Capitalization models are presented and discussed. Estimates of return to equity while holding the lending rate constant are calculated. This analysis is followed by a mathematical side-by-side comparison of the value estimated generated by the respective models.
Findings – Depending on the discount rate selected using a fixed lending rate the models yielded comparatively higher, the same or lower estimates of value for a hypothetical commercial property. The mortgage-equity capitalization model yielded significantly high estimates of value at lower discount rates, but at higher discount rates, the comparative-income approach estimates were comparatively higher.
Original/value – A systematic comparison of the appraised values yielded by these two income models has not previously been undertaken in research literature. Explicitly indicating the underlying-return on equity assumptions for given discount rate has not previously been shown.